Accounts receivable factoring, also known as invoice factoring, allows you to sell your company’s receivables to a third party in exchange for quick payment. In return for small transaction fees, payments are often paid on the same business day. It is a feasible alternative for most small businesses since no new debt is generated. 

Another perk of invoice factoring is that it can significantly enhance your company’s cash flow. Rather than having to wait for 60 or even 90 days for loan money to be authorized and paid from other financial institutions, factoring may provide you with access to your cash very promptly.

To help you understand how it can aid your business, here are other several vital benefits of leveraging accounts receivable factoring: 

1. Support Your Business Growth

Invoice factoring enables you to capitalize on business possibilities promptly. Because you are not waiting to be paid, you can finance equipment improvements, purchase materials and supplies, and recruit new employees as soon as they are required. Accounts receivable financing for a small business allows you to reclaim control of your company’s development in the competitive landscape. 

2. Provide Funding for Startup

Most small companies and startups have financial difficulties. Additional financing through factoring may be a good solution, enabling you to support your company by leveraging your customers’ credit. You may receive money fast through accounts receivable factoring of qualifying accounts at any time. You can be paid the same day in many instances, allowing you to devote your other time to other business obligations other than sourcing out an additional budget. 

3. Builds Your Credit Extension

Bank credit lines may take a long time to create, are typically rigid, and are usually restricted by what your business can attach as security. When you factor in receivables with a third-party company, you receive quick service and versatile financing.

Most factoring firms will allow you to prolong your receivable periods to obtain large customers. It may not be accessible when consumers constantly discover methods to extend payment beyond 30, 60, and 90 days. Even if you are sure that you will pay your bills, your clients may have procedures or practices that create delays.

4. Simplifies Collections

Business owners say collecting receivables is one of their most complex and time-consuming tasks. The factoring program removes you from the receivables business, allowing you to concentrate on servicing your customers and operating your business.

Tips on Making the Most Out of Invoice Factoring

To ensure that you get the best out of invoice factoring, you need to keep these tips in mind. 

1. Work With a Factoring Company That Uses a Bank Lockbox

Bank lockboxes timestamp every transaction. If you are anxious, you may request a duplicate of a check from the bank lockbox. Factoring services are aware of this, and a trustworthy factor will offer timestamped checks when requested. If payments appear to be taking too long, banks will give comprehensive information on when checks will arrive. That will also assist you in ensuring that your clients’ payments are applied on time and that you are not being overcharged on clearing costs.

2. Ask Around Before Exchanging in a Factoring Transaction

Remember the adage, “an ounce of prevention is worth a pound of cure.” You’re far less likely to get into trouble if you’re picky about whom you work with. Request a list of trustworthy factoring firms from your accountant or another business partner you trust. Ask for the contact information of existing customers after chatting with each factoring business. Prepare questions and investigate the connection as thoroughly as possible.

3. Check Different Factors Like Rates and Credit Limits

Excessively cheap rates have a catch, such as monthly minimums or inactivity penalties. Look for a flexible component that will work with the ebbs and flows of your company. Don’t be misled by the vast credit limits that are being given. Receiving a credit limit that much exceeds your requirements may seem flattering, but it may be a warning flag that your proposal contains minimum monthly costs. Monthly minimum fees are often determined by multiplying your “high credit limit” by your monthly factoring charge so that your minimum factoring expenses match your credit limit.

4. Monitor Your Receivables

Maintain an eye on your aging receivables and keep track of your collections. In factoring, money is valuable, and it translates to money. The quicker your collections arrive and are posted, the cheaper your invoice factoring costs will be over time. Do not make the mistake of losing track of your receivables. Nobody, not even the finest factoring business, will be as concerned about recovering your money as you are. Keeping track of your collections can help you save money on factoring charges.

Final Thoughts

When you run into a cash flow management crisis, it doesn’t necessarily imply you’ve done something wrong. It can only mean you need to figure out how to obtain the money you need quickly. Moreover, knowing the advantages and the necessary things to look out for when you invoice factoring can help you avoid charges and use it properly to your business advantage. 

Porter Capital assists businesses in a variety of sectors via invoice factoring and asset-based financing. Send us a message, and let us help you increase your business capital!